NEPAL: SCENESETTER FOR A/S BLAKE

UNCLAS SECTION 01 OF 02 KATHMANDU 000456 SIPDIS E.O. 12958: N/A TAGS: PREL PGOV PHUM PTER EAID KDEM IN NP SUBJECT: NEPAL: SCENESETTER FOR A/S BLAKE Introduction -------------- ¶1. (SBU) U.S. Mission Kathmandu warmly welcomes you to Nepal. Your visit follows A/S Boucher's visit in February 2009, and is the first since the Maoist-led government fell in early May and a new government was formed May 23. Political Situation -------------- ¶2. (U) On May 23 members from 22 of the 24 political parties represented in the Constituent Assembly (CA) elected veteran Communist Party of Nepal - United Marxist Leninist (UML) leader Madhav Kumar Nepal as Prime Minister. (Note: The election was necessitated by PM Dahal's resignation on May 4 after President Yadav thwarted his attempt to fire Chief of Army Staff Katawal.) MK Nepal and two other senior UML leaders (placeholders at Defense and Finance) were sworn in on May 25; negotiations to fill out the cabinet are ongoing. The new government faces a daunting set of challenges - including poor security, a weak economy, and unresolved peace process issues, notably how to proceed with integration and rehabilitation of Maoist combatants. Meanwhile, the government is faced with keeping the large, unwieldy coalition intact amidst intra-party bickering and differences over key constitutional and policy issues. The need to come to some broader political arrangement with the Maoists, who are now in opposition, further complicates matters. Security Situation -------------- ¶3. (SBU) The law and order situation in Nepal, especially in the Terai, continues to be poor. The previous government appointed teams to negotiate with the various armed groups. While some of the groups sent delegates to talks, little progress was made. The Maoist-affiliated youth wing, the Young Communist League (YCL),continues to engage in illegal activities such as threats, extortion and extra-judicial killings throughout the country. The YCL also clashes with the police and other party-affiliated youth wings such as UML's Youth Force. Economic/Development Situation -------------- ¶4. (U) One of the poorest countries in the world, the World Bank estimates Nepal's per capita GNP at $340. There are huge discrepancies in social and economic standing depending upon geographic location, gender, ethnicity and caste. GDP growth in FY 2008/09 is projected to be 3.5 per cent, slightly better than the 10-year average. Insufficient physical infrastructure, lack of a skilled workforce, domestic labor-management disputes, chronic load-shedding (which reached 16 hours per day last winter),frequent general strikes, poor security, and political instability all contribute to a challenging economic environment. With unemployment around 40 per cent, the country's most valuable export is labor; an estimated 3 to 4 million people are employed abroad, half of them in India. Remittances account for approximately 25 per cent of GDP and are a major source of spending on consumer goods, land/housing, health services, and education. Agriculture's overall contribution to GDP has diminished in recent years, but still provides a livelihood for about three-fourths of the population. A severe drought this past winter reduced agricultural production, placing more than 2 million people at high risk of food insecurity. Rising food prices have helped push inflation to 11.9 per cent during the first nine months of FY 2008/09. Military Issues -------------- ¶5. (SBU) The collapse of the Maoist-led government stalled recent limited progress by the Peace Ministry in formulating plans for the discharge of the disqualified and minors from People's Liberation Army (PLA) cantonments. The Special Committee for Supervision, Integration and Rehabilitation of Maoist Army Combatants (SC),which was headed by PM Dahal and KATHMANDU 00000456 002 OF 002 included representatives of the four largest parties, is on hold. The Technical Committee, established in April 2009 to provide options for integration and rehabilitation to the SC, has not convened since the collapse of the previous government. The new Defense Minister has announced she intends to grant term extensions to eight Nepal Army (NA) brigadier generals, whose extension was the subject of dispute, along with NA recruitment, between the previous Maoist Defense Minister and the Army Chief. Prime Minister Nepal has said that he will decide this issue and the future of the Army Chief once the full cabinet is in place. Several related cases are currently pending in the Supreme Court. USG Role -------------- ¶6. (SBU) Diplomatically, the USG continues to encourage all parties to participate in the peace process and constitution drafting. (Note: The new constitution is supposed to be finished by May 2010.) We work closely with the rest of the international community, notably India, the EU, especially the British, and the United Nations. The U.S. provides assistance of approximately USD 70 million a year, with the largest amount in health, but also funds for peace and democracy and a new five-year program envisioned to boost the economy. Conclusion -------------- ¶7. (SBU) You may wish to stress to the government and political leaders you meet that the United States fully supports Nepal's transition into a peaceful, stable, prosperous democracy. You may further choose to emphasize that, while the U.S. is encouraged by the formation of a new government, we believe it is necessary for all parties to maintain a commitment to the peace process and drafting the new constitution, and, in the meantime, to begin to address the other economic and law-and-order concerns that affect the lives of Nepal's citizens. POWELL